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Google aims to shake up mobile phone market with free software

SAN FRANCISCO - Confirming its long-rumored foray into the mobile market, Google said Monday it is developing a free cell phone software package so the Internet search leader can more easily peddle ads and services to people who aren't in front of a PC.

While the announcement ended months of speculation about the Mountain View-based company's cellular ambitions, the first phones equipped with Google's so-called "software stack" still won't be available until the second half of 2008.

And Google won't be making the phones, nor does it plan to stamp its prized brand on the devices. Instead, it will work with four cell phone manufacturers who have agreed to use Google's programs in their handsets. Consumers will have to buy a new phone to get the Google software because the bundle wasn't made for existing handsets.

Engineers have been working on the software for three years, dating back to a Silicon Valley startup called Android Inc. that Google acquired in 2005. The mobile software still bears the Android name in acknowledgment of its heritage.

"This is going to bring the Internet into cell phones in a very cool way," promised Andy Rubin, an Android co-founder who is now Google's director of mobile platforms.

Free software

Even with its market debut months away, Google's software looms as a significant threat to other mobile operating systems made by Microsoft Corp., Research In Motion Ltd., Palm Inc. and Symbian, which is owned by Nokia Corp. and several other major phone makers.

Because Google's software will be free, it could undercut rivals who charge handset makers to install their operating systems. It also promises to make smart phones less expensive since manufacturers won't have to pay for software.

Google's system will also be based on computer code that can be openly distributed among programmers. That, Google hopes, will encourage developers to create new applications and other software improvements that could spawn new uses for smart phones. A development tool kit for working on the new platform will be released next week.

"This is a shot that is going to be heard around the world, but it's just the first shot in what is going to be a very protracted battle in the next frontier of the mobile Web," said Michael Gartenberg, a Jupiter Research vice president.

So far, Motorola Inc., Samsung Electronics Co., HTC and LG Electronics Inc. have agreed to use Google's software in some of their phones. Both Motorola and Samsung already buy Microsoft's Windows Mobile in some of their phones.

The list of wireless carriers that have agreed to provide service for the Google-powered phone in the United States include Sprint Nextel Corp. and Deutsche Telekom's T-Mobile in the United States. China Mobile, Telefonica in Spain and Telecom Italia are among the carriers that have signed on to provide service outside the United States.

They are among a Google-led group of 34 companies that have formed the Open Handset Alliance. Other key players include major chip makers like Intel Corp., Qualcomm Inc., Texas Instruments Inc., Broadcom Corp. and Nvidia Corp.

"This partnership will help unleash the potential of mobile technology for billions of users around the world," said Eric Schmidt, Google Inc.'s chief executive.

Several key details, like pricing and how many phones will be shipped next year, have yet to be worked out.

But it's likely the Google-equipped smart phones will cost less than the popular iPhone that Apple Inc. began selling in June. The sleek device, retailing for $399, already has been credited with getting more people on the mobile Web. With 1.4 million units sold through September, the iPhone has been a huge success that has contributed to a $90 billion increase in Apple's market value so far this year.

Schmidt sits on Apple's board of directors, making it likely the Cupertino-based company has been kept fully abreast about Google's effort.

Opening digital doors

The expansion represents Google's latest attempt to muscle its way into a new market - a trend that has raised concerns about the 9-year-old company growing too powerful as it becomes more deeply immersed in the daily lives of its users.

Diversifying into cell phone software could open more digital doors for Google to build upon the trove of information that it has collected about its users' personal interests so it can profit by showing more appealing ads.

Google is framing its latest move into cell phones as a much-needed breath of fresh air in a market where innovation has been stifled by the restrictive platforms adopted by the leading wireless carriers and phone manufacturers to maximize their profits.

"Software has been the bottleneck that prevented the Internet from taking off in the mobile market," Rubin said.

With nearly 3 billion cell phones already on market, the company wants to ensure people are able to use its search engine and other services, such as e-mail and maps, on mobile handsets just as easily as they can on personal computers.

Wall Street is betting that Google's mobile software will enable the company to make more money from showing ads.

Since details about Google's cellular plans began to dribble out in early September, the company's shares have surged by about $200, or nearly 40 percent. Google's stock price hit a new high of $726 in Monday's morning trading before falling back to $722.42, up $11.17 for the session.

Google currently generates most of its revenue - expected to exceed $16 billion this year - from text-based ad links displayed alongside search results and other Web content usually viewed on the screen of a personal computer.

Mobile advertising promises to be another gold mine because cell phones have become even more pervasive than PCs. In some parts of the world, mobile phones already are the primary conduit to the Web for many people.

Oppenheimer & Co. analyst Sandeep Aggarwal predicted Google will harvesting as much as $4.8 billion in annual revenue from the mobile market two to three years after its software first appears in cell phones.

Aggarwal punctuated his comments by raising his 12-month target for Google's stock to $850, up from $745.